Social Sector & Fertilizer

Having interacted with a leader of a fertilizer plant, it’s not a rosy situation to run a fertilizer plant.. the industry is dependent on the governments and babu’s.. because, till today, the situation is worse and not encouraging.. the fertlizer company will purchase all the raw materials, involve resources and produce fertilizers and will sell them at a subsidized price , as directed by government. but the problem is the working capital.. the government will not give the subsidy in advance/during production.. only after few dragging months , post sale, the government will clear the bill.. most of the time, they say, its a charity running a fertilizer plant.. with measures of passing the subsidy directly to the farmers and more incentives to start a fertilizer plant, hope, its getting revived…

budget measures:

•Capital investments in Fertilizers to be considered as Infra spending & Extension of investment linked deductions for businesses investing in fertilizers

•Nutrient based subsidy to be extended to Urea

•Direct transfer of subsidy to farmers( BPL)

HRD & Social Justice:

one of the highest spent sectors in the budget.. the most noble aim- to improve the living condition of the civilized society ; but most of the scandals and looting happens in this sector .. as usual , a slew of measures… ( donno, whether they are for the masses, or for the corrupt officials and politicians)

Budget announcements:

•NREGS

–Same amount allocated again; 400 bn

•Is this good/bad?

•Push for micro enterprises & MFI & SHG ( two corpus funds to be created for each with 1 & 5 Bn)

•Swavalamban

–Pensioner’s delight

•Withdrawal age relaxed to 50 yrs / 20 yrs from joining

•Indra Gandhi old age pension scheme

–Relaxed to 60 yrs instead of 65

–Raised to Rs 500/- instead of Rs.200/-

•Interest subvention of 1 % on home loans

•Scheduled caste/ sub plan allocations

•Special attention to NE states , Naxal states & J&K

•Naxal hit districts to get 550 Mn each

Education:

With more than 30% of population going to be in their youth/teens after a decade, the plans/proposals  looks a great step forward…

Budget measures:

•520 Bn allocated towards education development

•More reasons to go to school

–Sarva shiksha abhiyan – 210 bn- more schools to get class rooms and toilets !

–Mid –day meals- 103 bn

•Getting to understand the reality

–Vocationalization of secondary education

–Higher UGC grants( 53 Bn)

–Technical education boosters ( 56.6 bn)

–ICT education initiatives ( 9.43 bn)

–National skills development fund ( 5bn)

•Optical fibre connectivity  for higher learning and research institutes

•Social spending

–Scholarships to SC/ST students in their secondary schools ( 4 mn beneficiaries )

–Aligarh Muslim university – 500 mn funds

–Kerala veterinary college – 1 bn

–IIT kahragpur – 2bn ( are we spending on research which will benefit India/ make students settle abroad??)

–IIM kolkata- Financial research & trading – 200 mn

–Economics research- 500 mn

Budget Review 2011-2012; Agriculture

Clearly, a clever attempt of taming the inflation. Instead of spoiling the masses ( and of course balance sheet) with subsidies, budget proposes a lot of measure to rectify and improve the supply chain and logistics efficiency of the agricultural products, which is a key driver in moving up the inflation and costs.

The government is looking so serious in to the issues of supply chain bottlenecks a measure to control inflation. It’s the Government’s push to facilitate storage and reduce the production and supply chain bottlenecks in the agricultural sector. A perfect execution of these measures will bring down the price difference between whole sale and retail chains and also an effective pricing for farmers.

Also we can see a planned approach to alternate edible oil resource development through palm oil outlays and it’s heartening to see agricultural inclusion of eastern regions as well…

 

Few snippets from the budget:

• The total plan outlay for agriculture & allied sector is 147.44 bn an increase of 19 %.
• Increase in  corpus of RIDF (Rural Infrastructure Development Fund) to 180 bn wherein the additional allocation would be dedicated to creation of warehousing facilities.
• Interest subvention proposed to be enhanced from 2% to 3% for providing short-term crop loans to farmers who repay on time.
• Capital base of NABARD to be strengthened by 30 bn in a phased manner, enhancing credit flow to farmers/agriculture.
• An allocation of 13.50 bn for National Food Security Mission.
• An allocation of 7.80 bn for Macro Management in Agriculture.
• An allocation of Rs11.50 bn for National Mission on Micro Irrigation.
• An allocation of Rs7 bn for National Agricultural Insurance Scheme including 1.50 bn for Modified national Agriculture insurance scheme.
• Focus on supply chain efficiency for items like fruits and vegetables, milk, meat, poultry and fish.
• Rs.4 Bn allocated for eastern states for agricultural developments, focussing on rice based plantations.
• An allocation of Rs3 bn to bring 60,000 hectares under oil palm plantations – an initiative to yield about 3 lakh metric tonnes of palm oil annually in five years.
• Rs 3 Bn towards Vegetable cultivation initiatives
• An allocation of 3 bn provided for Accelerated Fodder Development Programme to benefit farmers in 25,000 villages.
• Promotion of organic farming methods, combining modern technology with traditional farming practices.
• An approval being given to set up 15 more Mega Food Parks during FY12.
• Augmentation of storage capacity through private entrepreneurs and warehousing corporations has been fast tracked.
• Extended full exemption from excise duty to air-conditioning equipment and refrigeration panels for cold chain infrastructure.
• Include conveyor belts in the full exemption from excise duty to equipments used in cold storages, mandis and warehouses.

BUdget Outlook 1 :Tax payers..esp salaried class

It’s a mixed bag of fortunes for the salaried class. though the expectations of drastic cut in tax rate/slabs, due to growing inflation, FM cannot do much beyond 2k savings every year

the only comfort is the removal of tax filing …

Tax payers

If you are getting salary and TDS is done, no need to file tax from this year. If you have any other income, other than salary, you need to file the returns, otherwise, the Form 16 which u receive from ur company is sufficient.

New tax slabs:

Std deduction to be raised to 1.8 lacs- so we save Rs.2000/- in tax directly.

So, if your salary is 9 lacs per annum;

The tax would be;

Current				Proposed
upto 1.6 lacs	0%	0		upto 1.8 lacs	0%	0
1.6 – 5 lacs	10%	34000		1.8- 5 lacs	10%	32000
5-8 lacs	20%	60000		5-8 lacs	20%	60000
above 8 lacs	30%	30000		above 8 lacs	30%	30000
net tax		124000		net tax		122000

And , if you are a senior citizen, then , the tax exemption goes up by another ten thousand rupees; from 2.4 lacs to 2.5 lacs per annum.;

And keeping in mind the poor CM’s who still wants to rule the country even after 80 years of age, the FM (one of the probable contestant in the future J ) announced a special category of tax payers- super senior citizen, where the tax exemption limit will be upto 5 lacs per annum.

********

• Since, DTC implementation is getting postponed, you can enjoy the ELSS ( tax saving mutual funds), benefits for another year.
• The tax exemption for  investments in infra bonds for 20,000 is still applicable .
• Investment related Insurance products will cost more , since they are included in service tax net.

Budget 2011-2012

The budget was something like you are leading a marathon race, but you are running a never ending track! India, by all means is well ahead of the target of 8 % growth rate, says economic survey and budget speech by Finance minister,, and true, we are experiencing it.. a never before surge in services and booming job market, but this is not 2007, where, we had just growth alone.. we have a monster to control which will make all the plans & policies declared in the budget as useless..Inflation. added to this is the current account deficit, which is surging, and lesser than expected/geared down growth of industrial production.

The underlining issue in budget is to address the issues of inflation and to roll up the sleeves to maintain the growth momentum, and to achieve the targeted fiscal consolidation, and achieve greater revenue ( or u can say to unlock potential ) from disinvestments..
Though the government/budget/few economists say that increase in infrastructure allocations will help in moving that sector to greater heights, it might not lead to a bubble in Infra sector.. but if managed well, this will improve the connectivity to greater heights..
On a overlook, budget gives a lot of hope by focussing on Three life line sectors of education, Infrastructure and Agriculture- which for sure will address the issues in the longer and medium term.
Few bold decisions can be seen in the budget.. new fertiliser policy for urea, direct transfer of cash subsidy to BPL people for better delivery of kerosene, LPG and fertiliser, liberalisation of the FDI policy etc.. but there are few disappointers as well.. Rescheduling the implementation of Direct Tax Code (DTC) and Goods and Service Tax (GST) by April 2012 sends a signal on the weak admin system and implementation plans of Indian government.. ( i have stopped my SIP’s in ELSS funds, this year expecting DTC to come in action this year.. need to renew them.. good at least for another year  ).. what surprises me is the fiscal deficit target… when every other country is reeling under pressure, FM says, we can control it well beyond the targeted limit of 4.8%.. bravo..

Following this , we will have  CapitalM’s view on effect of budget proposals on various sectors of Banking, Financial services, Taxation, Agriculture, Pharma, Infra etc..

DTC- the new tax code

There is a lot being told and discussed about the direct tax code and here is an assessment of how it would impact a salaried guy ..

Few things to note:

• The new DTC is not yet approved by parliament. Only the cabinet has approved it.
• The new DTC will come into effect only from 2012. Till then the current tax slabs/codes will apply.
• Don’t fell bad about this DTC code.. considering the loooong time we refined our tax codes, this is an achievement by itself and the FM’s name will be remembered for next 4 generations

For most of the professionals who falls below the 10 lac salary limit, will now be getting a lot more saved.  But as always your financial advisor says, if you are investing in any of the Tax saving instruments available, then you might save much bigger amount.

Current Slab:

Current Slabs
Upto 1.6 lacs	0%
1.6- 5 lacs	10%
5-8 lacs	20%
8 lacs and above	30%

Proposed Slabs
upto 2 lacs	0
2lac- 5 lac	10%
5lac- 10 lac	20%
more than 10 lac	30%

New Changes in the DTC code:

No more ULIPs/ELSS schemes.. You can invest up to a maximum of 1 lac (in PPF/PF/Superannuation /NPS /Combination of the all) and another 50K towards (Insurance premium paid towards Term policy/Mediclaim-self, Parents/tuition fees for children)

-          This is a mixed benefit bag..ELSS were really a good product and a good start for people to start investing in equities, and they delivered real good returns compared to other tax saving instruments..Donno why the govt scrapped this from 80 C net.. The good thing is , if at least 1% of the people don’t buy ULIP’s because it is not going to be covered in 80C/no tax benefit, it will be good for them. ULIP’s- a good product which is in the wrong selling hands still L

-          The NPS schemes can now replace ELSS- since it can have equity exposure upto 50%, but still, we can redeem it without any taxation only after retirement.

-          The bad part again is the scrapping of  deduction of Principal paid towards home loans under 80C.

One good thing is, currently you might be submitting medical bills for upto 15k to your company for tax deductions, and in the new bill it has been raised to 50K. Atleast govt realised  that cost of medicines are very high

SEBI Vs IRDA on ULIPs

 

SEBI, after a very long time, woke up to the known secret that ULIPs are in disguise Mutual fund schemes, which were operated in full swing for so many years, thanks to the exorbitant commission paid to the agents and even made banks to forget who they are and act as a bunch of salesmen. In India, u visit any bank, (except for few PSU’s), there is a 95 % of chance, that you will be marketed an insurance product or a mutual fund.  The success of these products was just a tactical replica of what UTI did in its years of inception, clubbing the safety aspect to any product, and you can make the Indian customer wow, and put the risks involved in finer prints, which would require a magnifier to read and voila, you make millions in terms of profits.

You can read more on ULIPs here.

The issue in one line – SEBI does not ban ULIPs but stops them until these ULIP schemes are regulated and they come under SEBI .

 Now, coming to the issue, which is heating up between the two regulators, SEBI and IRDA. As both of them are formed by special acts of parliament and are autonomous bodies, the issue will be more tensed by the counter move of IRDA ordering all the insurance companies to sell ULIPs irrespective of SEBI’s ban. The issue of contention is the investment part in the ULIPs. SEBI says all investments which involves securities will come under its jurisdiction while IRDA says, they don’t come under securities, but they are part of the insurance premiums.

 The Insurance companies say that,

• The predominant feature of a ULIP is insurance cover which is dependent on human life and the mere existence of an additional investment feature cannot convert a ULIP into a mutual fund.
• Under a ULIP, units are only notionally allocated and not physically issued and the units are created for the purpose of determining the benefits payable under the policy and are not owned by the policyholder
• Under a ULIP, only the risk on the investment portion lies with the policyholder while the risk on the life insurance portion vests with the insurer. ( have you ever told this to the investor? :)  )
• It cannot be traded as like a mutual fund. It can only be transferred or under special circumstances, investors can redeem premium paid towards investment part .
• Unlike a mutual fund, a ULIP is not established in the form of a trust. The fund is held by the insurance company itself as required under the Insurance Act.
• Ancillary features such as fund management, fund management charges etc., are alone not sufficient to convert a life insurance product into a mutual fund scheme.

 (This is the response given by the companies to SEBI in response for its query.)

 What does SEBI say in response to these queries? -

• Any person/entity involved in mutual funds or collective investment schemes or trading in securities for others should be registered with SEBI.
• ULIP offer document states that, these products are different from traditional insurance products
• The risk is borne by the investor for the money invested and subject to the risk associated with capital markets
• The product has characteristics such as fund management, fund management charges, switch and partial withdrawal options – which are characteristics of mutual fund.
• The product is unit linked and money is raised from public through sale of units to them. This is a characteristic of collective investment scheme or a mutual fund.
• The contributions or payments made by the investor are pooled
• The contributions or payments are made to such ULIPs by the investor with a view to receive profits, income.
• The investment made by the investor in the ULIPs is managed on behalf of the Investor.
• The investors do not have day-to-day control over the management and operation of the ULIPs.

 All these are similar to mutual fund operations.

 And all the activities and literature related to ULIP’s clearly state that they are predominantly investment options, combined with a small percentage of premium paid towards insurance of the investor. If you check the product brochures of few ULIP plans, you might not get to see more than 2-3 % of the premium will be directed towards life cover (or insurance or mortality charges as they are called). So a contract which makes 3 % allocation towards insurance and 97% towards investments, can be called an investment company or insurance company?

 Finally, once these ULIP plans come under SEBI

• It will for sure regulate the commissions paid towards distributors/ agents and will make it a level playing field for mutual funds and ULIP plans
• Will clearly distinguish with insurance products & mutual funds
• Will save a lot of money for the investor (at least he will save 300 % towards charges - for ULIP’s in a simple calculation, if he pays 100 Rs premium for 15 yrs, he would have paid 164 Rs as commission or charges, where as for the same amount invested in mutual fund, he would have paid less than 25 Rs.and another 30 Rs for same cover in a traditional insurance plan.)

 Who knows, the insurance companies will stop marketing ULIP plans aggressively, and of course, the frontline bank sales men would be yielded to more pressure, as their revenue might come down, but the targets will remain the same

Airtel’s African rhythm

 

•           Burkina Faso 
•           Chad
•           Congo Brazzaville
•           Dem. Rep. of Congo
•           Gabon
•           Ghana
•           Kenya
•           Madagascar
•           Malawi
•           Morocco
•           Niger
•           Nigeria
•           Sierra Leone
•           Sudan
•           Tanzania
•           Uganda
•           Zambia
 
These are not just a list of countries in African continent, but Bharti’s future lies in these areas. The mobile penetration is much lower in these regions when compared to India or any other third world countries. But the question is how good or profitable its gonna be? It was earlier, bharti’s which tried its every sweat to acquire the prospective and emerging mobile market – South Africa through MTN’s acquisition.
Why such a quest for foothold in the African market? Its one of the market which we can see ourselves backwards. African consumers and the consumption market are in a stage where India was some 10 years ago, with one difference, the penetration rate is low, but usage- in terms of mobile application is high. Social Networking and surprisingly banking through mobile is fast catching up in South Africa than India.
Africa is a gold mine for any global operator who has the war chest to absorb losses for initial two years. Remember reliance and their magic number 501, which turned the mobile telephony market in India few years back? That is the same strategy which is gonna work for bharti, which will help it to penetrate easily into the market .
 
So, Bharti will try the tested strategy in the African markets which will help mittal to achieve the status of a truly global player, and not to be surprised, if he continues his JV with Wal-Mart ( it is not present in Africa! ), in the African sub continent. The only challenge he might face in the countries listed above is not the business or competitors, but the politicians. It will not be a big issue, for one of his earlier avatar was a power broker and someone associated with Harshad metha and for two decades he had dealt with the sophisticated Indian politicians 

DAILY INTEREST CALCULATION FOR SAVINGS BANK ACCOUNT HOLDERS

From tomorrow as per RBI’s guidelines, all savings bank accounts will yield daily interest for the balance kept in the account at the end of the day even though the applicable rate is 3.5 % , the banks had their own rule of calculating the balances for interest calculation and it makes an effective rate which might vary between 2.8-2.95 %, since most of the savings account shows higher balance in the first week, which banks will not consider for interest calculation . Now with this new rule, the banks will calculate the balance (principal) for interest daily – average balance will be taken, so that at any point of time the customer gets 3.5 %.

This will definitely hit the bottom-line of banks, because so far, the low-cost fund mobilizing by the banks were from current accounts ( CA ) and Savings account ( SA), and every retail banker will be running behind the customer to maintain balances in savings account. Now, the same will continue, but the banks will be in a situation to pay more interest to the customers.( instead of 2.9 % now they need to pay 3.5% ), so net profits may take a dip , depending on the banks dependencies on savings book. The other factor which have impact in the banking industry is the short-term deposits – from 7 days-15 days,45 days. Currently the banks are giving somewhere about 2.5 %- 3% for these deposits, where in keeping money in savings account will earn 50 bps more than the deposit. So, except for corporate parking in short-term deposits, HNI & UHNI, who used to park temporary cash, will prefer to keep it in savings account.

But I have heard few shrewd bankers have found a way to market for these low-cost funds( compared to FD’s). They have arrived at a calculation ( which only they know ),  and projected to clients stating that instead of fixed deposits, they can keep money in Savings account, which will earn them more than FD rates. which is not gonna happen. If that is the case, the whole world will keep money in savings account than FD( and ppl know how painful is to make/withdraw FD’s from nationalized banks ), Retail bankers are increasingly betting their better cousins in investment bank, in identifying new ways to deceive clients …

Example of how the new system will work :

For instance, an individual who earns Rs 50,000, which is credited to his account on the first of every month. Assume the existing balance in the account at the start of the month was zero. From the salary received, he withdraws Rs 25,000 for various household expenses on the 5th of the month. So, the available balance on the 10th of the month will be Rs 25,000. Assuming there is no regular payment to the account but a withdrawal of Rs 10,000 is likely on the 20th of the month for some expense that may arise.

According to the present norm of calculating interest for savings account – The balance on the 10th of the month is Rs 25,000. There is a reduction in the account balance by Rs 10,000 by the 20th of the month. Hence, the balance used for calculating interest is Rs 15,000 and the interest for the month will be Rs 44.

By the new daily balance method, there will be a minute look at the changes that have taken place and hence there will be a different method for the calculation. Let’s assume a month of 30 days, there will be interest paid on Rs 50,000 for five days (1st to 5th of the month), then on Rs 25,000 for 15 days (5th to the 20th of the month) and lastly, on Rs 15,000 for 10 days (20th to the 30th of the month). Therefore, the total interest earned on various available balances will amount to Rs 75, higher than what is earned as per the present norm.

Now consider the same case, where instead of a withdrawal towards the end of the month, there is a deposit of Rs 15,000 on the 25th of the month due to interest received on a fixed deposit. If we go by the current norms, there will be no change in the interest, that is the interest earned will be around Rs 44. The reason: The deposit does not impact the lowest balance figure between the 10th and the end of the month so the total interest received stands at Rs 43.75. The daily interest method will compute interest on Rs 50,000 for 5 days, Rs 25,000 for 15 days, Rs 15,000 for 5 days (20th to 25th of the month) and then Rs 30,000 for 5 days (25th to 30th of the month, as the deposit was made on the 25th). So, in this case, the total interest earned will be Rs 82 for the month, almost double of what is earned by the old method.

South African currency – RAND

An unexpected rate cut (50 bps down to 6.5 %) has been announced in South Africa today. What might be the outcome of this rate cut? This might boost economic activity, since PLR has also been reduced as with repo rate cut. So by all chance more money flow would be witnessed in the economy with a chance to improve the employment rate across sectors affected by the recession. This might as well increase the inflation beyond the tolerance limits of 6 %. More over, it will weaken the ZAR. Rand is already trading at 7.3 per dollar and with more monetary flow; it will still weaken and might reach the ranges of about 8 in Q3 and beyond 9 by next year. So, expats working here; good to convert the rand salary to your base countries currency

The wolves are back…

If you have seen in the recent days, there are a lot of summits happening all through the world- they call it US summit, Asia Pac summits and what not….but what do they discuss? Is that of something important which would bring a rationale to their investment advice given to the world’s richest? A big no.. the Reuters Wealth management summit which concluded just now, has all the honchos of private banking and wealth management world discuss these important things

- how to maximize their revenue

- how to bring back the blood thirst risk appetite among their clients

- How to run their original show without getting affected by recent regulatory issues- this they didn’t touch directly, but every speaker has raised a ‘concern’- protesting in their own ways….

What ever happens, they still do not want to be transparent … As quoted, the essence of banking is to make you indebted and the very essence of private banking is to gamble with your money…